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Consumer Driven

Health Careaka

Individual Health Savings Accounts

P.L. No. 108-173, section 223

How HSA Came to Pass

• 06/27/03—H.R. 1 passes House 216-215• 06/27/03—S. 1 passes Senate 76-21• 07/14/03—Medicare Conference begins• 11/21/03—Conferees complete work• 11/22/03—House passes final bill 220-215• 11/25/03—Senate passes final bill 54-44• 12/08/03—President Bush signs Medicare bill into law

Definition of HSA

Define HDHP

Can Network Plan Qualify?

Exceptions

For Eligible Individuals

• Tax-exempt trust or custodial account• To pay qualified medical expenses• If covered by High-Deductible Health Plan• Not covered by non-HDHP (some exceptions)• Not entitled to Medicare (generally under 65)• May not be covered as Dep on another’s taxes.

Can Self-Insured Plan Qualify?

HSA

Define HDHP

Can Network Plan Qualify?

Exceptions

Deductible & OOP Requirements

• $1,000 Deductible minimum for Individuals• $5,000 OOP Maximum for Individuals• $2,000 Deductible Minimum for Families• $10,000 OOP Maximum for Families• Not including 1st Dollar Preventive Care • Can have higher deductibles and lower out-

of-pocket expense caps• You may not have a plan with office visit co-

pays, or an Rx plan with co-pays.

Can Self-Insured Plan Qualify?

HSA

Definition of HSA

Define HDHP

Can Network Plan Qualify?

Network Plans Qualify

• Has richer In-Network Benefits• Out of Network Benefits can Exceed limits• OON Benefits not used in determining

Contribution Limits• In-Network Deductible used in Determining

Contribution Limits

Exceptions

Can Self-Insured Plan Qualify?

HSA

Definition of HSA

Define HDHP

Can Network Plan Qualify?

Exceptions

Can Still Have:

• Workers Compensation Plan Coverage• Automobile Insurance Coverage• Other Property Insurance• Tort Liability Insurance Coverage• Accident Insurance• Dental Insurance• Vision Insurance• Long Term Care Insurance• Daily Hospital Fixed Amount per Day• Specified Disease or Illness Coverage

Can Self-Funded Plan Qualify?

HSA

Definition of HSA

Define HDHP

Can Network Plan Qualify?

Exceptions

Self-Insured Plans

• Employer sponsored Self-Insured Plans Qualify

• Must meet Deductible and OOP requirements• Cannot have a deductible for preventive care

HSA

Can Self-Insured Plans Qualify?

Definition of HSA

Who Can Contribute?

How to Start HSA

Contributions

• Both Employee and Employer can Contribute• Family Members may Contribute on each

others behalf-if they are both eligible individuals

• Actual annual HSA contribution limit must be computed on a monthly basis for each month that the individual is eligible

• HSA contributions by employees can be made on a pre-tax basis through Section 125 of the Code (cafeteria plan)

• ER’s must make same dollar amount or same % of the deductible contributions on behalf of all EE’s in same coverage category

• There is a 35% excise tax of amount contributed for violations

HSA

Who is Qualified Trustee or Custodian?

Who can Contribute?

How to Start HSA

HSA Start-Up

• Begins January 1, 2004 or later• Can start mid-year• Same as starting IRA or Archer MSA• No permission from IRS needed • Can establish HSA without Employer

involvement• Must use Qualified Trustee or Custodian

HSA

Who is qualified Trustee or Custodian?

Who can Contribute?

How to Start HSA

Qualified Trustee/Custodian

• Defined in section 408(n)• Any Insurance Company• Any Bank or similar institution• See Regulation 1.408-2(e) relating to non-

bank trustees• Does not have to be same institution that

provides the HDHP

HSA

Who is Qualified Trustee or

Custodian?

Maximum Contribution

Earnings Requirements

Distributions

Maximum Contributions

• $2,650 (up to $220.83 per Month)• $5,250 (up to $437.50 per Month) • Catch-up Contribution allowed if age 55 +• No earnings requirements to contribute• Earnings grow tax free• All HSA contributions made on behalf of individual are aggregated for limits calculation• If individual begins 6/1/05 the annual limit is $1,545.81 ($220.83 x 7)• Catch-up contribution limit is $600 in 2005 for individuals and spouses between ages 55 & 65• Catch-up amount will increase $100 annually until it reaches $1,000 in calendar year 2009

HSA

Maximum Contribution

Distributions

Earnings Requirements

• None• Can contribute for 2005 thru April 15th, 2006• Contributions must be made in cash-not stock or other property• Contributions are “above-the line” deductible whether the individual itemizes or not• If you may be claimed as a dependent you may not deduct contributions to an HSA• There is a 6% penalty if you over-contribute• Can make it right before deadline (skip 6%)• Employer contributions not subject to FICA or FUTA or Railroad Retirement Tax Act

HSA

Earnings Requirements

Maximum Contribution

Distributions

• Permitted at any time • Any amount not used to pay for qualified medical expenses of the account beneficiary, spouse or dependents is includable in gross income and is subject to an additional 10% tax on amount includable—unless distributions made after account beneficiary’s death, disability, or attaining age 65• Burden of proof for proper use of distributions is on the account beneficiary not the trustee, custodian or the employer• Upon death any remaining balance in HSA becomes the property of named beneficiary• This does not include distributions made for final qualified medical expenses made within one year of death

HSA

Earnings Requirements

Distributions

Other Matters Other Matters• Discrimination rules demand that ER contribute same amount or same percentage of the deductible for all participating EE’s• HSA can be offered under a cafeteria plan thus contributions are then made on a salary-reduction basis• HSA’s are not subject to COBRA, but you can pay for your COBRA with HSA dollars• May use debit, credit or stored-value cards to receive distributions• Rollover contributions from Archer MSA’s and other HSA’s are permitted

HSA

Several Big Tax Advantages

• Pre-tax contributions/deposits tax-free

• Earnings tax-free

• Distributions/expenditures not taxable upon withdrawal for appropriate IRS allowed medical expenses

Better treatment than a 401(k) plan

Sales Expectations?

How do you feel about HSA’s?

Who do you think will buy them?

HSA’s

Who buys HSAs

Initial Sign up

Aetna Results

Results to date

• 70% of purchasers are over are 40• 77% are families with children• One-third make less than $50,000/year

http://press.fortishealth.us.fortis.com/fh/press-release-cm/newsroom/hastert

HSA

Who Buys HSAs

Aetna Results

Early Results

• 438,000 people sign up for HSAs in first 9 months.• 30% were previously uninsured.

www.ahip.org

HSA

Initial Sign up

Who Buys HSAs

Early Results

• Use of preventive services up by 23%• 5.5% decrease in Rx costs and a 7% increase in overall generic utilization• 3.7% medical cost increase, compared to double-digit increases for a similar population• Medical costs fell by 11% for one full- replacement plan sponsor

http://www.aetna.com/news/2004/pr_2004D622.htm

HSA

Initial sign up

Aetna Results

Watson Wyatt

Booz Allen Hamilton

NBGH Survey

• 8% of large employers surveyed now offer HSAs

• Another 18% plan to offer HSAs next year• 47% are considering them for future• 75% of employers say, “HSAs are effective

vehicles to engage employees more in managing their health,” 49% “aren’t sure if they will help lower costs”.

HSA

Watson Wyatt Future of HSAs

• HSAs will begin a new movement toward building personal financial security• Expect consumers to demand “package pricing” for high cost services• “CDHPs and HSAs will begin to restructure both the healthcare world and the financial services world in profound ways.”

HSA

Booz Allen Hamilton